Sometimes the markets get away from me…

Volume profile and technical support and resistance

As many have already observed, I’m sure, volume profile confirms technical support and resistance over time. Or maybe it’s the other way around. Put another way, composite profile studies render — in what to some may be a much more visually appealing way — the inflection points and consolidation areas already shown by conventional charting. It’s as simple as that.

Even within intraday time frames, volume profile is aligned with horizontal support and resistance on time series charts. The same is true for market profile. Throw up any volume profile chart or market profile chart alongside a price series chart. On the market profile or volume profile chart, draw horizontal lines at the range extremes, at high and low volume nodes, at poor lows and highs, at the end of “open drives”, etc. Now look at a time or price series chart and look at areas of consolidation, breakouts, and reversals. Notice that these areas align. Notice that in price consolidations, the points of control and value areas are clearly evident without the profiles.

Some will argue that volume and/or market profile charts make important points about value, the amount of volume at time and price, the relative amount of bids to offers, etc. If one trades in very small time frames — taking ticks out of the market, instead of handles, for example — this would be pretty critical information to have. Most of us, however, use composite charts. (I still use a six month composite chart for swing trading to confirm key levels.)

For most who use profiles to trade from a few days to a few weeks, I could counter that there are *no* statistical studies that I’m aware of which prove that one point of control (POC) is better than another when it comes to the number of contracts traded at that level. For example, if I am looking at a 200 day volume profile composite and a 20 day composite, each showing a different point of control, I have no statistical evidence one way or the other about which will be more significant right now. I can only infer that the more proximal POC may be more significant because, well, it is closer in time to where the market is trading. (This gets to recency bias — a rabbit hole I’ll avoid here.) I can’t count the number of times I’ve watched price blow through a POC, high volume node, or low volume node, without so much as a wink, and stopping finally at some inexplicable value.

The same applies to value areas, standards of deviation from the POC, standards of deviation from initial balance (2 minute, 15 minute, or 30 minute?), etc. The same logic applies to studies of volume at breakout points and at range extremes. I’ve taken into consideration several variables — time of day, market events (OPEX, rollover, end of quarter and FY, etc.), data-driven market reactions, and global event risks (news releases, geopolitics, extremes of nature, etc.).

If I haven’t said it enough already, there simply is nothing that volume or market profile can tell me that is not already evident on an ordinary time or price series chart…in terms of what is statistically significant for me. And in particular, for a trader who defines risk and reward based on inflection points, short term trends, and projected excursions.

I’m making progress in intraday time and price studies, and refining the daily range and probability studies. More on that later.